Simple Inside Bars

This is a discussion on Simple Inside Bars within the Trading Journals forums, part of the Reception category; There is a lot of talk of risk reward and different strategies so i am going to attempt to demo ...

There is a lot of talk of risk reward and different strategies so i am going to attempt to demo trade a simple system on the GBPUSD over the next few weeks.

I will trade the break of a 1hr Inside bar in the direction of the day (chosen by taking the open of the 6am Uk time candle) with an entry by stop loss 4pips outside the bar and my stop 4 points the other side of the bar.

I will then check every hour and if a bar makes a new high i will move my stop to 50% difference from this candle and my previous stop and my exit will either be stop hit or signal in other direction.

Hi foredog,
I use inside bars and have studied them for quite a while - but only in the context of U.S. equities and not FX. A couple of things that you might like consider:
1. As a rule (and there are exceptions) I trade the breakout of the bar / candle prior to the inside bar - what I call the 'holding bar'. Breach of the high / low bar is more significant than the breach of the high / low of the inside bar because it signifies either that the trend is continuing or that a possible reversal is underway. Price activity 'inside' the holding bar denotes indecision and relative parity on the part of buyers and sellers.
2. If price breaks out above / below the holding bar and then returns to close back inside it - exit the trade, don't wait for your stop to be hit. This is usually a sign of a false breakout. If price then moves to the other end of the holing bar and breaks out there - then this is a much stronger signal than the first one.
3. Add a very tight moving average to your charts - I recommend the 5 period weighted moving average (5WMA). The best (long) trades will be the ones where price breaks above the holding bar but is also VERY close to the 5WMA. Look at the average bar length (regardless of timeframe). Don't take any trades where price is more than half a bar away from the 5WMA when the trade is triggered. This is tops - less is preferable. The reason for this is that price rarely deviates very far for very long from the 5WMA and if it's already a long way above it when you enter, the probability of a successful trade is greatly reduced as price will - likely as not - 'return' to the 5WMA. Vice versa for shorts.
I'll happily post charts to illustrate the above if it's not clear - but I've no time just now.
Good luck!
Tim.